Why XLM Could Fall 6%?

• Stellar price action shows a double technical formation that tends to be followed by a bearish move.
• On-chain data shows a bearish outlook as XLM’s OI-weighted funding ratio data is negative and the long-short ratio is below one.
• A daily candle close above $0.1031 would invalidate the bearish thesis.

Stellar (XLM), an open source blockchain used for various payment and remittance applications, shows a double-top formation. This pattern signals a potential bearish trend reversal. Additionally, on-chain data supports this bearish move, as XLM’s OI-weighted funding rate and long-short ratio data show a negative bias, suggesting a decline in Stellar’s price.

Stellar price is set for a downtrend as it breaks below the support level

Stellar Lumens price rose to close at $0.1031 in early August after recovering from the $0.0933 level. From early to mid-August, it formed an M-like structure known as a double pattern, which often signals a potential bearish trend reversal. On Wednesday, the price of Stellar closed below the neckline at $0.0931, and at the time of writing on Friday, it is trading slightly higher by 0.3% at $0.0933.

If the $0.0931 level holds as resistance, XLM could drop 6% to retest the August 6 low of $0.0879.

The Relative Strength Index (RSI) and the Awesome Oscillator (AO) on the daily chart are trading below their neutral levels of 50 and zero, respectively. These momentum indicators strongly point to bearish dominance and imminent decline on the horizon.

If the bears are aggressive and the global crypto market outlook is negative, XLM could close below the $0.0879 level, extending a further 14% drop to retest its August 5 low of $0.0757.

XLM/USDT Daily Chart

Coinglass’ OI-weighted funding ratio data is a crucial metric for traders and analysts to gauge market sentiment and predict future price movements. This measure is based on funding rates in futures contracts, weighted by their open interest. A positive rate (longs pay shorts) usually signals bullish sentiment, as longs offset shorts. Conversely, a negative rate (shorts pay longs) indicates bearish sentiment, with shorts offsetting longs.

In the case of Stellar, this metric is -0.0083%, reflecting a negative rate and indicating that shorts are paying longs. This scenario often signifies bearish sentiment in the market, suggesting potential downward pressure on the XLM price.

Stellar OI weighted funding rate graph

Additionally, Coinglass data shows that XLM’s long-short ratio is 0.86. This report reflects bearish sentiment in the market, as the number below suggests that more traders anticipate the asset’s price to fall, reinforcing Stellar’s bearish outlook.

XLM long-short ratio chart

Despite the bearish outlook shown by technical analysis and on-chain data, if Stellar price produces a daily candlestick close above $0.1031, it would invalidate the bearish thesis as it would show a higher high on a daily time frame . This could send Stellar price up by 3% to revise the July 31 high of $0.1066.